Zoopla: Does buying to rent still make sense now that UK rental growth has reached a three-year low?

Higher taxes and fewer reliefs are already causing landlords to struggle, and now the growth of rentals is slowing down

In a fresh setback for real estate investors, rents are increasing at the slowest pace in three and a half years.

The profits from their property portfolio are now even more at risk, as buy-to-let landlords already face increased taxes, reduced mortgage reliefs, and upcoming rental regulations.

The average UK rent for a new rental is currently 1,284 per month annually, according to Zoopla's most recent quarterly Rental Market Report.

According to Zoopla, the average UK rent for new rentals has increased by 3% annually, which is less than the 74% increase that occurred a year ago.

Zoopla attributes this, the lowest rental growth rate in three and a half years, to deteriorating rental affordability rather than a significant rise in the number of rental properties available.

It comes after warnings from the previous year that renters will eventually figure out how much they can afford and are willing to pay.

However, the mismatch between supply and demand continues to maintain high rents.

According to Zoopla's analysis, there are 11% more rental properties available, but demand is 17% lower because of fewer immigrants and higher demand from first-time purchasers.

With 12 renters vying for each house, this mismatch between supply and demand is still a problem, according to Zoopla.

It is still twice as competitive as it was before the pandemic, but it is at least nearly half of what was seen for rental properties between 2022 and 2024.

According to Richard Donnell, executive director at Zoopla, "after three years where rents have risen rapidly, renters will be happy to hear that rents are rising more slowly than average earnings."

"Affordability, not more supply or a wider selection of rental properties, continues to be the main driver of rental inflation.

Where rents fluctuate in value.

Over the past year, the demand for rental housing has decreased in all UK regions and nations, according to Zoopla, with lower mortgage rates assisting first-time homebuyers in stepping onto the real estate ladder.

With the exception of the West Midlands, where rental supply is still lower than it was at this time last year, supply is also beginning to rise, according to the real estate website.

According to the report, rental inflation varies from a low of 11% in London to 6.3 percent in the North East and 9% in Northern Ireland.

The more affordable cities, where affordability is less of a barrier to rental growth, are seeing the biggest increases in rents, according to Zoopla.

According to the data, rents increased by 10 percent in Blackburn, 9 percent in Stoke, and 9 percent in Rochdale over the previous quarter.

Will 2025 bring higher rents?

The Renters Rights Bill and the repeal of section 21 no-fault eviction notices are two concerns that may drive landlords out of the rental market, according to Zoopla, which predicts that demand for rental properties will continue to outpace supply in 2025 and maintain a steady upward pressure on rents.

Zoopla predicts that rents will rise by three to four percent by 2025 as more affordable markets see faster growth, offsetting slower growth in big cities.

Donnell continued: "Rental reforms and policy changes that affect the amount of new investment are unlikely to result in an increase in the size of the overall stock of privately rented homes in the upcoming years. Reforms in the private rental sector should be planned and implemented to minimize the adverse effects on supply, which disproportionately affect those with lower incomes.

Agents that handle rentals are also observing this pattern.

Greg Tsuman, director of lettings at Martyn Gerrard Estate Agents, stated: "These numbers are consistent with what we are witnessing locally, where a shift in rental demand is occurring to more reasonably priced areas as a result of the significant increases in rental prices, which caused many tenants to reach their price cap and relocate.

"It is probable that a combination of factors will lead to another spike in rents in the second half of this year. Seasonal demand increases around this time, many buy-to-let properties are up for remortgage at higher rates, and some landlords are taking possession of their properties ahead of the repeal of section 21 evictions.

"All of these will push rental prices higher, which protects the longer-term stability of buy-to-let investments for landlords.